NEW YORK (TheStreet) -- Arch Coal (ACI) - Get Report stock is retreating by 11.13% to $4.31 on heavy trading volume on Tuesday afternoon, as the company struggles to gain support for a bond swap that would allow the company to reduce its obligations amid falling commodities prices, Bloomberg reports.
Senior lenders are expected to pressure the company to skip an $18.1 million interest payment in three weeks to retain cash, according to Bloomberg Intelligence credit analyst Spencer Cutter.
"Creditors would rather the company not pay the interest because it cuts into their recovery, even if it's not a big coupon," Cutter told Bloomberg. "They'd rather the company file sooner than later if they don't think the company is going to recover."
Arch Coal announced a swap in July that would exchange up to $2.38 billion in unsecured notes for new secured debt with longer maturities, but lenders blocked the deal because of concerns that it would lower the value of other debt.
The St. Louis-based company has been dealing with falling demand of steel-making metallurgical coal because of slower growth in China and a decline in thermal coal demand due to competition from cheaper natural gas, Bloomberg added.
Separately, TheStreet Ratings team rates ARCH COAL INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate ARCH COAL INC (ACI) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally high debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 73.5% when compared to the same quarter one year ago, falling from -$96.86 million to -$168.10 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARCH COAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for ARCH COAL INC is currently extremely low, coming in at 9.16%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -26.08% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$121.30 million or 218.62% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The debt-to-equity ratio is very high at 3.69 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, ACI has managed to keep a strong quick ratio of 2.11, which demonstrates the ability to cover short-term cash needs.
- You can view the full analysis from the report here: ACI Ratings Report